How this number is made
A covered call is long the shares and short a call. The premium lowers the break-even. The most you can make, if the call is exercised, is the strike minus the purchase, plus the premium. Above the strike the shares are called away. The page assumes you still hold the shares at expiration and the call is European in the sense that the only outcomes are called or not.
- The premium is per share, cash you received.
- Shares should match the calls you sold. One contract covers 100 shares.
Formula
Break-even = purchase price − premium. Profit if called = (strike − purchase + premium) × shares. Profit if unchanged = premium × shares.
Worked example
With the figures already in the form, profit if called away is $700.
Questions
What if the stock falls?
You lose on the shares, offset by the premium only. The break-even is the price minus the premium. Below that, the loss is the further drop.
Is the premium taxed?
Often yes, and the holding period of the shares can change. This page is the cash result before tax.